Mortgage guide
A mortgage is a loan from a bank or building society in order to purchase a property. The money is then paid back to the lender over a fixed period of time together with interest. There are serveral different types of mortgages and only one of them is the best suitable for you.
Repayment Mortgage
You will have to do monthly repayments that consist of two parts, one part is for repaying the capital amount borrowed and the other part is the accrued interest. On your mortgage statement you will see that the outstanding balance decreases throughout the term.Advantages
- You know that at the end of the term the total amount of the debt has been repaid.
- Overpayments and lump sum payments into your mortgage account can be made, reducing both the interest and capital amounts repayable.
Disadvantages
- There can possible be financial penalties for making overpayments on your mortgage.
- At the start of a repayment mortgage the majority of the monthly repayment is interest rather than capital.
Interest only mortgage
If the scheduled monthly mortgage payment consists of interest only, then the mortgage is interest only. The result with this kind of mortgages is that the loan balance will remain unchanged the months that you only pay of the interest.Advantages
- If the proceeds of the plans exceed the amount required to repay the mortgage, then this is received as a cash lump sum by the borrower.
- Some plans are tax-efficient.
- Interest-only mortgages can be good for borrowers who have a valid use for a lower initial required payment
Disadvantages
- Many people will not invest or save the extra money and spend it instead
- Many people are not disciplined enough to pay the extra money on principal payments when they don't have to
- The anticipated income growth may fall short
